In the ongoing trade war between China and the US, cotton prices have taken a hit of more than 32 percent in the international market in the past one year. And the crash in prices in the global market has reflected in the domestic market, with the Indian futures market recording a 16 percent fall in cotton prices.
"The US-China trade war has badly affected the Indian cotton market. The US is the world's biggest cotton exporter and China its bigger consumer. The tussle between these two big business partners has hurt cotton market across the world, including India, which is the world's largest cotton grower," said Arun Shekhsaria, Director, DD Cotton Private Limited.
"Chances of recovery at present are few. So we expect the prices in the Indian market to crash further," said Dilip Patel of Kadi (Gujarat)-based S. Raja Exports Private Limited.
During the last business session on the country's largest futures market Multi Commodity Exchange (MCX) on August 2 (Friday), the August contract closed at Rs 20,060 per bale (Rs 170 kg) with a 2.48 percent or Rs 510 fall over the previous session.
Cotton was priced Rs 23,990 per bale on the MCX on August 2, last year. Therefore, the price has seen a fall of Rs 3,930 per bale or 16.38 percent in the past one year.
According to sources, the benchmark Gujarat Shankar-6 (29 MM) variety of cotton traded at Rs 42,000-42,300 per candy (356 kg) this week against a price of Rs 46,700 and above per candy during the same period last year.
On the US' Intercontinental Exchange (ICE) on August 2 (Friday), the December contract for cotton closed with a 2.95 cent fall of 4.73 per cent at 59.42 cents per pound. Cotton price on the ICE was 88.17 cent per pound during the same period last year. Therefore cotton prices on the ICE registered a 32.62 percent fall in the past year.
According to the Cotton Association of India (CAI), domestic cotton production during the 2018-19 (October-September) season is 312 lakh bales, while the consumption is expected to be 315 lakh bales. There's 33 lakh tonne of leftover stock, while 14.5 lakh bales have been imported.
In its July forecast, the CAI had said that the total cotton supply in the country during the season-ending September 30 may remain 376 lakh bales, which would include 33 lakh bales of remaining stock, 312 lakh bales produced and 31 lakh bales imported. Market watchers, however, add that the imports may decline. The CAI has also released a forecast of expected exports of 46 lakh bales this season.
According to figures released this week by the Union Agriculture Ministry, the country's cotton sowing area has increased by 5.35 hectare in this season against last year. Some 115.15 hectares has been sown so far this year as compared to 109.79 hectares, which was sown by this time last year.
The producers are worried. "If the cotton market continues to remain lean, the Cotton Corporation of India (CCI) may have to buy our produce at a higher minimum support price (MSP)," said Shivraj Khaitan of Salasar Balaji Agrotech.The government has fixed the MSP of medium staple cotton at Rs 5,255 per quintal and long-staple cotton at Rs 5,550 per quintal.